Corporate earnings, world reserves and more...

Results of India Inc. have started pouring in and the scenario presented is rather mixed. In the IT space, while the top four heavyweights have posted decent results for FY08, growth nevertheless has been impacted by the sharp 11% appreciation of the rupee against the US dollar. Managements of these companies have indicated that while clients are seeing business restructuring and leadership changes and expect technology spending to slow down for the next two quarters, there are expectations of a pick up after that considering the leverage that offshore outsourcing provides them (the clients). In the auto space so far, both Maruti and Hero Honda have reported results. While Hero Honda has performed well against a backdrop of declining two wheeler sales, Maruti was also able to post a decent growth in volumes. That said, rising steel prices are likely to weigh heavy on the profitability of auto companies going forward. The banking sector has been subject to mixed fortunes as well. While both Axis Bank and HDFC Bank posted strong results, ICICI Bank's performance left a lot to be desired. Just to put things into perspective, while both Axis Bank and HDFC Bank posted 62% YoY and 35% YoY growth in advances respectively, ICICI Bank's advances grew by a considerably slower 15% YoY.

Morgan Stanley (through its Global Economic Forum) has stated that the world's foreign exchange reserves now stand at a mammoth US$ 6.6 trillion reflecting a growth of 25% YoY (or an increase of US$ 1,355 bn). If this pace continues, it is expected total official reserves to breach the US$ 8 trillion mark by the end of this year. Another key point to be noted is that Asian countries and oil exporting countries account for a larger part of the reserves. For instance, while Asia has reported reserves of US$ 4.1 trillion, the same for the oil exporting nations stand at US$ 1.1 trillion. In these countries especially, intervention has played a key role in the accumulation of reserves to arrest the sharp appreciation of their respective currencies. Over the last 12 months, the proportion of growth coming from interventions has been almost 70%. Buoyant oil prices have largely benefited the Gulf countries helping them in adding on to their reserves. In terms of total reserves in the world, China leads the pack with reserves of US$ 1.57 trillion, followed by Japan (US$ 1 trillion) and Russia (US$ 507 bn). India's forex reserves stand at US$ 333 bn.

While Europe has been the next focus destination for Indian pharma companies given the intense pricing pressure in the US, the scenario has not been hunky dory. For instance, UK has been facing brutal price erosion as market conditions are very akin to those in the US, given that generics cannot be branded. And in recent times, pricing pressure has started creeping into the other European markets as well. A case in point is Germany. The German government has undertaken changes in healthcare reforms, which has increased the differential between the price of a branded drug and that of a generic and hence top companies in that country have had to considerably slash the prices of their generic drugs.

This has been amply reflected in Dr. Reddy's 9mFY08 results, which were partly impacted due to the muted performance of Betapharm. Ranbaxy, too, has been facing the heat especially in the UK and France. While the company's French operations have managed to break even, the performance in this region has nevertheless been sluggish. Even Terapia, the Romanian company acquired by Ranbaxy, faced a substantial decline in sales in 1QCY08 owing to the uncertainty of healthcare reforms post Romania's integration with the European Union in CY07. As a result, most of these companies are now increasing focus on the emerging markets as generics can be branded in these regions consequently leading to higher profitability.